Investment Idea

Target Redemption Steepener Note

Though interest rates might remain at a low level over the long term, Picard Angst’s investment idea of December 2018 offers attractive returns. With the Target Redemption Steepener Note, investors receive fixed coupons for the first four years and then benefit from rising spreads between long-term and medium-term interest rates.

Uncertainty on the stock markets is high and price fluctuations have increased over the course of this year. Investments in interest rate products are therefore a promising alternative to direct financial investments such as equities. Accordingly, our Target Redemption Steepener Note gives you the opportunity both diversify your portfolio and benefit from above-average returns in the current low-interest rate environment.

With our latest investment idea, you benefit from a steepening interest rate curve between medium and long interest rates. In the first four years, you receive a guaranteed interest payment of 1.50% per year, regardless of the development of the interest rate markets. You will then receive the difference between the 20-year Euro CMS rate and the 5-year Euro CMS rate multiplied by a factor of 2, with a redemption feature if the sum of the coupon already paid and the variable interest is equal or above the target redemption rate of 9%.

Development of 5-year and 20-year interest rates

If the interest rate difference is 1.11 per cent as at 17 December 2018, the coupon paid out in the fourth year is 2.22 per cent. The greater the difference, the earlier the note will be redeemed. If the difference is inverse, as in the 2008 financial crisis, the coupon will be floored at 0% and the investor cannot.

How the Target Redemption Steepener Note Works

This product is a bearer bond under German law. This product is a fixed to floating rate curve steepener linked to the difference between the 20-year Euro CMS rate and the 5-year CMS swap rate with a target return.

Coupon

For the first four interest periods, a coupon of 1.50% per period of the nominal amount is paid on the corresponding interest payment date. From the fifth interest period onwards (excluding the last interest period), the investor receives a coupon on the relevant interest payment date, the amount of which depends on the development of the reference rates. The coupon for the respective interest period corresponds to the difference between reference rate 1 and reference rate 2 on the relevant interest fixing date multiplied by a factor of 2, but at least 0.00% per period (minimum interest rate).

Early Redemption

On any interest fixing date, excluding the last interest period, if the sum coupon for the relevant interest period and all previously paid coupons (including the fixed coupons for the first four periods), is at or above the target redemption rate, the investors will receive an early redemption in the amount of the nominal amount on the relevant Early Redemption Date. In addition, the coupon fixed on the relevant Interest Fixing Date will also be paid.

End of term

If there is no early redemption, investors will receive a redemption on the maturity date in the amount of the nominal amount. For the last interest period, investors will receive a coupon on the relevant interest payment date, the amount of which depends on the development of the reference rates. The coupon for the last interest period corresponds to the greater of the difference between the reference rate 1 and the reference rate 2 on the relevant interest fixing date multiplied by a factor of 2 and the difference between the target redemption rate and the sum of all previously paid coupon (including the fixed coupon for the first four interest periods). Investors could suffer a loss if the redemption plus coupon received is lower than your individual purchase price (taking into account any costs) or in case of default by the issuer.

Target Redemption Steepener Note

Coupon Years 1 to 4: 1.50% p.a.
Years 5 to 15: 2*(EUR 20y CMS - EUR 5y CMS)
Maturity 15 years
Issuer SG Issuer
Target Redemption rate for early redemption 9,00%
Floor Year 5-15 0,00%
Leversage 2
Issue price 101,00%
Subscription period 21.12.2018 bis 31.01.2019, early closing possible
Currency Euro
Early redemption as soon as the sum of all interest payments is higher than or equal to the target redemption rate

Your contact person

Roman Schmid

Co-Head of Client Advisory Switzerland

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